Dalmia's deal to buy Jaypee Cement assets lingers with arbitration

The acquisition of cement assets from Jaiprakash Associates (Jaypee group) by Dalmia Cement remains in limbo, nearly 15 months after the deal was announced.

The closure of the Dalmia-Jaypee deal is being held up by ongoing discussions between lenders to the Jaypee group and the National Asset Reconstruction Company Limited (NARCL), as well as a separate arbitration between Jaiprakash Associates and UltraTech Cement.

In December 2022, Dalmia Cement, a wholly owned subsidiary of Dalmia Bharat, signed a binding framework agreement to acquire clinker, cement, and power plants from Jaiprakash Associates and its subsidiary/associate. Total cement capacity of these plants is 9.4 million tonnes (mt), and the enterprise value is Rs 5,666 crore.

From its inception, the deal has been fraught with concerns, possibly leading Dalmia Cement to structure it in three parts. One tranche of the deal includes JP Super Cement with an enterprise value of Rs 1,500 crore, and costs and expenses up to Rs 190 crore.

Jaiprakash Associates is currently embroiled in an arbitration with UltraTech Cement over Dalla Super Cement’s (formerly known as JP Super Cement’s) assets in Uttar Pradesh, which is part of the third tranche of the agreement Jaiprakash Associates has signed with Dalmia. UltraTech Cement stated in its last quarterly update that the arbitration proceedings are ongoing.

As the arbitration has been underway since December 2022, the remaining two tranches of Dalmia’s deal with Jaypee are now awaiting clarity from lenders, according to people in the know. Media reports suggest that lenders to the Jaypee group have been in discussions with NARCL to sell their entire debt exposure of various Jaiprakash Associates businesses, including cement. If a successful deal is reached, it remains to be seen whether NARCL will follow through with the agreement signed between Jaiprakash Associates and Dalmia Cement.

Puneet Dalmia, managing director and chief executive officer of the company, noted in a call with analysts in January that the company is working on closing the proposed Jaypee acquisition by the end of the March 2024 quarter. This timeline is already a revised one. As of yet, the company has not provided an update on the completion of the deal.

An email query sent to Dalmia Cement last week went unanswered.

The acquisition, which includes assets in Madhya Pradesh, Uttar Pradesh, and Chhattisgarh, is expected to allow Dalmia to expand its footprint into India’s central markets and contribute to Dalmia’s plans to expand capacity to 75 mt by FY27 and 110-130 mt by FY31. As of December 2023, the company operates a capacity of 44.6 mt.